Ontario Hose Specialties Inc.

Ontario Hose Specialties Inc.

December 22, 2006 14:48 ET

Ontario Hose Specialties: Proposed Farm in With Vermilion REP SAS and Vermilion Exploration SAS to the Aquitaine Maritime Exploration Permit and Change of Business to the Oil and Gas Industry

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Dec. 22, 2006) - Ontario Hose Specialties Inc ("OHS"or the "Company") (NEX BOARD:OHS.H) is pleased to announce that it has entered into an assignment agreement (the "Assignment Agreement") dated as of December 21, 2006 and with an effective date of January 1, 2007 with Signature Capital Corporation ("Signature") under which the Signature will assign to the Company all of Signature's rights and obligations under a farm in agreement (the "Farm In Agreement") between Signature and Vermilion REP SAS, a wholly owned subsidiary of Vermilion Energy Trust (TSX:VET.UN) ("Vermilion") and Vermilion Exploration SAS , a wholly owned subsidiary of Verenex Energy Inc.(TSX:VNX) ("Verenex"). The Farm In Agreement relates to the Aquitaine Maritime Exploration Permit held by Vermilion and Verenex which is located approximately 30 km offshore of Bordeaux, France.

The transaction will be a 'Change of Business" in accordance with the policies of the TSX Venture Exchange and the NEX. The closing of the assignment is subject to a number of conditions including (a) approval by the appropriate regulatory authorities in France; (b) regulatory and shareholder approval; (c) completion of a financing of not less than CDN $ 23.5 million by OHS; and (d) closing of the transaction on or before March 28, 2007.

The Aquitaine Maritime Exploration Permit (the "Permit")

The Permit covers 1,211 km2 located offshore, Bordeaux, in the south of France, and lies within an offshore extension of the Parentis Basin. The onshore portion of the basin has had over 600 wells drilled with over 1.2 billion barrels of oil discovered. The largest field, Parentis contains 550 million barrels OOIP with over 200 million barrels of approximately 30 degrees API gravity oil having been produced. Historically, only 20 wells have been drilled offshore based on 2D seismic locations, 12 of which had oil shows, two with possible oil columns and 7 tested oil. The majority of the prospects are located in depths of 50 to 200 meters of water.

Previous work on the Permit was undertaken by Esso in the late 1980's and more recently a 775 km2 3D seismic survey and an initial interpretation of this data was completed by Vermilion in 2005. Six closed structures at the base of the Lower Cretaceous shale seal and one lead with closure within the Tertiary rocks have been identified.

The primary reservoir target is the Lower Cretaceous Aptian sands that are productive in several of the onshore fields. The Aptian interval thickness in these wells is between 300 to 700 meters. Porosity within this interval ranges from 14 to 25 percent and has an average of 20 percent. There are several other secondary target reservoirs present that are productive onshore, the Upper Jurassic, Upper Cretaceous and Lower Tertiary units.

The Farm In Agreement

The Farm In Agreement is dated November 13, 2006 and is among Vermilion and Verenex as farmors and Signature as farmee. Signature agreed to pay 50% of the costs and expenses to drill and test one exploratory well on the Permit up to a maximum cost of US $17,000,000 and a further US$500,000 to Verenex upon spudding of the well to earn an undivided 30% beneficial interest in the Permit. Vermilion will act as operator and is responsible for the remaining 50% of the costs and expenses of the well. If total gross well costs exceed US$ 34,000,000, the excess cost will be shared by all the parties, in accordance with their beneficial interests. Upon completion of the one well, Signature will have earned an undivided 30% beneficial interest in the Permit and each of the parties will be responsible for the payment of its participating interest share of the costs and expenses relating to the Permit going forward. Signature advanced the sum of US$3,000,000 on November 1, 2006 as a deposit for the Farm In Agreement. In certain circumstances the deposit may be forfeited by Signature. Vermilion is currently applying for all necessary authorizations and permits for the drilling and completion of the exploratory well on the Permit.

The Assignment Agreement

Under the Assignment Agreement effective January 1, 2007, Signature has agreed to transfer all of its right title and interest in and to the Farm In Agreement and the Permit to the Company in consideration of a cash payment of US $6,000,000 to Signature upon closing. In addition, the Company has agreed to pay a continuing production royalty of US $0.60 to Signature for each barrel of oil equivalent from the Company's share of production from the Permit area.

Signature is a private company incorporated pursuant to the laws of the Province of British Columbia and is based in Vancouver, British Columbia. Signature is controlled by David Cohen, Robert Cross and Ford Nicholson.

Change of Business

The completion of the transactions contemplated in the Assignment Agreement will be a change of business for the Company with a new focus on the international oil and gas industry. The Company was previously engaged in the specialty hydraulic hose and related equipment business. As announced on July 4, 2006 the TSX Venture Exchange accepted for filing documentation pertaining to a share purchase agreement dated May 23, 2006 between the Company and Ontario Newco Holdings Ltd. ('Newco") under which the Company agreed to sell to Newco all of the issued and outstanding shares of Ontario Hose Specialties Ltd., a wholly owned subsidiary of the Company representing a sale of the operating hydraulic hose business. This transaction closed as at June 30, 2006. As announced on July 5, 2006, due to the disposition of the subsidiary Ontario Hose Specialties Ltd. and in accordance with TSX Venture Exchange policies, the Company did not maintain the requirements for a Tier 2 company and, therefore, effective at the opening July 5, 2006, the Company's listing was transferred to the NEX board of the TSX Venture Exchange, and the Company's tier classification was changed from Tier 2 to NEX. The trading symbol for the Company changed from OHS to OHS.H. There was no change in the Company's name or CUSIP number and no consolidation of capital.

Upon completion of the Assignment Agreement, the Company will concurrently apply to transfer from the NEX board to either Tier 1 or Tier 2 of the TSX Venture Exchange. The Company also intends to change its name to one more suitable to the oil and gas business it will be involved in. The change of name was approved by the shareholders of the Company at the 2006 Annual General Meeting. The change in business to the oil and gas industry and the change in the Company's listing status remains subject to meeting all of the conditions necessary to close the Assignment Agreement and to shareholder and regulatory approval.

Financing Requirements

The Company currently has approximately CDN $ 2,100,000 in working capital. Successful completion of the rights and obligations pursuant to the Assignment Agreement and the Farm In Agreement will require a total of CDN $ 23,500,000. The Company is currently negotiating a brokered private placement of up to CDN $35,000,000 with a syndicate of brokerage houses experienced in funding international oil and gas ventures. There are currently no agreements in place for such financings and therefore the terms and conditions have not been determined and the Company can offer no assurance that it will be successful in closing such financings. If the Company is unable to raise sufficient financing it will be unable to acquire Signature's interests under the Farm In Agreement.

Board & Management Changes

Upon completion of the transactions proposed pursuant to the Assignment Agreement, the board of directors and the senior officers of the resulting issuer is planned to be comprised of the following individuals:

Geoffrey A. Carrington, Ph.D., D.I.C., P.Geoph.: President and CEO - Dr. Geoff Carrington earned his Ph.D. in geophysics from Imperial College, London. He has worked only in the oil industry and from 1987 has focused exclusively on international projects. Dr. Carrington has lived in Dubai and Malaysia during his 25+ year career and has worked in many countries spanning most of the world's petroliferous areas. He is a proven oil-finder with an impressive track record in exploration, but also has extensive experience in areas such as, business development, operations, contract negotiation and oil and gas economics, amongst others. In his most recent position as Executive VP with a public, junior international oil & gas company, Dr. Carrington played a large part in turning the company around and was deeply involved in financings, shareholder relations and strategic planning at the most senior level.

David Cohen: B.Sc (Chem Eng), MBA, Pr Eng: Chairman of the Board of Directors- Mr. Cohen has held senior operating, project development and commercial positions with major global resource and construction companies in the mining, petroleum and construction sectors. Over the last 10 years, he has started up a number of successful listed resource companies and raised significant equity for them. He is a board member of public companies in the oil and gas and mining sector.

Stephen Barley, B.Comm., LLB. Mr. Barley is a lawyer whose securities law practice (1982-1997) included a number of publicly traded companies involved in the business of mineral exploration. Mr. Barley left private practice in 1997 to pursue investment opportunities in private and public companies and continues to act as a director, investor, or corporate finance advisor to various public and private organizations including mineral resource and oil and gas companies at various stages of exploration and development. Mr. Barley holds a B.Comm. degree from Mount Allison University; a LLB. Degree from Dalhousie University; and is a member of the Law Societies of British Columbia and Alberta. Mr. Barley was appointed President of the Company on July 5th, 2006.

Sargent Berner, B.A., LLB., LLM. Mr. Berner currently serves as a director and advisor of numerous public companies. He was a senior partner of DuMoulin Black LLP, a Vancouver law firm, where he practiced in the areas of corporate, securities and natural resources law. Mr. Berner holds a B.A. and LL.B. from the University of British Columbia and a LL.M. from the London School of Economics.

Kathleen Butt, B.Comm., C.A. Ms. Butt is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of British Columbia. Over the past 10 years, Ms. Butt has worked in the oil and gas industry with Duke Energy's Gas Transmission Division. She held management positions in various financial capacities including Manager of Financial Reporting and, Manager of Forecasting and Budgeting. Ms. Butt was also a tax manager with Ernst & Young LLP (Vancouver), where she articled and obtained her Chartered Accountant designation.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a NEX company should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this press release.

OHS intends to seek a waiver from the Sponsorship requirements of the Exchange in accordance with applicable Exchange policies. All information contained in this news release with respect to OHS, and Signature was supplied by OHS and Signature, respectively, for inclusion herein.

Dr. Geoffrey Carrington, a Qualified Person under the meaning of the National Policy 51-101, is responsible for the technical content of this news release.

This news release may contain forward-looking statements based on assumptions and judgments of management of OHS regarding future events or results. Such statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ materially from those reflected in the forward-looking statements. OHS disclaims any intention or obligation to revise or update such statements except as may be required by law.

Shares Outstanding: 62,566,033

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Ontario Hose Specialties Inc.
    Stephen Barley
    (604) 926-4300
    Email: sbarley@shaw.ca